Costly houses mean less kids!
Population decline in many countries has been in the news. The most overlooked factor causing this decline is higher home prices. Lets discuss.
The population (ex-migration) in developed countries is now declining. This was first evident in Japan, Europe, the US, and now China. Even in developing countries, the population is declining in certain income classes.
PIR v TFR
Housing affordability can be measured using the ratio of median housing prices to median income. This is usually referred to as the Price-to-Income ratio. The higher the PIR, the lower the affordability. You can compare this ratio across time for the same city or country.
TFR, or Total Fertility Rate, is an important variable that denotes the average number of children a woman has had over her life.
TFR is lower for places with low housing affordability (i.e., PIR is high). This pattern of lower TFR with higher PIR is evident
between countries*
within countries between different cities, and
even within cities (argued, not proved).
Other factors also affect TFR - but not as much
Many have argued that affluence itself leads to lower TFR. Women empowerment, availability of contraceptives, abortion, etc. are also potential factors. Within the same income-housing class, these do affect choices. However, real estate prices explain quite a bit of the decline (70-80%). Free housing for the poor does not help TFR (Weak).
How it affects is also not clear.
Many have tried to understand why the relationship is such. It is difficult to explain logically, and people will have questions like these.
I do not know the answers to these questions. Yet, high housing prices may be a proxy for other variables, such as living costs, child-rearing costs, physical safety, medical expenses, etc., all of which closely follow housing costs.
In sum
Intervention in the housing sector is a choice that can affect TFR and, hence, the country's economic future. In their quest for low inflation, many countries end up stoking housing and real estate prices. A low-interest rate regime transforms housing/real estate into a savings deposit. Policymakers would do well to balance both sides of the problem.
Notes:
* China, with its one-child policy, is a bit of an outlier.
TFR for population replacement is 2.1, and South Korea has the lowest TFR of 0.72, while Niger has the highest of 6.73. India’s TFR is 2.05.